Debt and Deficits

Manhattan Institute's Brian Riedl Is Very Worried About Deficits

Our fiscal problems aren't going away. In fact, they're getting worse.

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It's been a while since America's budget deficit has been in the headlines, but the gap between how much money the federal government brings in and how much it spends is growing once again. During fiscal year 2018, which ended on September 30, Washington ran a $779 billion deficit—the largest since 2012. We are likely to hit $1 trillion in deficit spending in the current fiscal year.

Even those massive numbers have struggled to break through in a news environment dominated by presidential tweets and the culture wars. The Manhattan Institute's Brian Riedl is trying, however, to keep lawmakers' eyes on the challenge. In a recent paper, he floats several ways the United States could change course before it hits the financial iceberg. But talking with Reason's Eric Boehm in October, Riedl explains why he thinks the ship is nonetheless more likely to sink than to veer to fiscal safety.

Q: Within the next year, the U.S. government will be running a trillion-dollar annual deficit. How should we think about that?

A: We're about to be hit with a fiscal tsunami that we're not prepared for. The national debt right now is $20 trillion, and we're going to be hit with an $84 trillion shortfall over the next 30 years, according to the Congressional Budget Office—and that's the rosy scenario. One way to think about it is: In order to pay for all of this, your federal tax burden would have to double. As a percentage of the economy, federal spending is going to grow toward European levels.

Q: But is a $1 trillion deficit really that much worse than a $999 billion deficit?

A: From an economic point of view, each marginal billion is not a big deal. But a trillion dollars is symbolically important, and the bad news is that it's only going to get worse. We're heading toward a deficit of $2 trillion within a decade, or even $3 trillion if interest rates rise. Those are numbers that have to get people's attention. We've never had deficits like this during peace and prosperity before.

Q: You argue 2023 is a significant threshold for addressing these problems. Why is that?

A: The proposals that I recommend to avert this debt crisis start five years from now. It's not because we can afford to wait five years—as a matter of fact, waiting five years will make things a lot worse than if we do it now. It's an acknowledgment of the politics at play. Politically, we are not close to being ready for the kind of reforms we are going to need. Not only is the country in denial, the House is in denial, the Senate is in denial, the White House is in denial.

Q: How much of the problem is entitlement spending?

A: Over the next 30 years, Social Security and Medicare will run a $100 trillion deficit: Social Security will run $18 trillion, Medicare $41 trillion, and the interest on that debt will be $41 trillion more. The rest of the budget is going to run a $16 trillion surplus over the next 30 years. In other words, our long-term deficit is 100 percent the result of Social Security and Medicare.

Revenues are going to continue rising above historical averages. Every other part of the budget is shrinking [as a percentage of GDP]. But with Medicare, the average couple retiring today will have paid $140,000 into the system over their lifetime and will get $420,000 back. When you throw 74 million baby boomers into a system that pays you back triple what you put in, it's going to blow up.

The reason I fixate so much on Social Security and Medicare is because the hole is too big to be closed [by cutting] any other part of the budget.

Q: The politics of what you are proposing—of what you are saying is necessary—just seem completely impossible to surmount.

A: There is no appetite for fixing this in Washington. None. Republicans are cutting taxes, and Democrats are proposing $42 trillion in new spending over 10 years. No one is taking this even remotely seriously.

The challenge right now is that when you talk to people about how to solve the long-term debt crisis, everyone has their pet theory that is simplistic, easy to understand, and completely wrong. But as long as everyone has their pet theory on how to fix this, no one is going to be willing to endure the real pain it is going to take.

This interview has been condensed and edited for clarity and style. For a longer version, visit reason.com.

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27 responses to “Manhattan Institute's Brian Riedl Is Very Worried About Deficits

  1. The Left will try anything to make Trump look bad… Even tank the economy deliberately… Trump has made huge economic reform!
    https://aladyofreason.wordpress.com/

    1. Crazy-bot is crazy.

    2. Interesting. I might want to subscribe to your newsletter…OMG you actually have provided a link!

      1. She manages to be the first commenter pretty consistently. Must not have much else to do.

    3. @Lady : Trump doesn’t need any help from the Left ? he is doing a wonderful job of making himself look bad.

      Trump has made a huge contribution to filling the swamp with corrupt, incompetent appointments, many of whom have been fired or resigned, but others with even lower qualifications/ethics will replace them.

  2. How can you worry about the deficit when we have a homelessness crisis? I said, we have a homelessness crisis! A growing homelessness crisis! You should panic over the growing homelessness crisis that shows no signs of abating! The worst panic-inducing homelessness crisis since the last time a Republican was in the White House!

    1. About 554,000 people in the U.S. were homeless on any given night in 2017

      How is this not an epidemic???

      1. It is not an epidemic, if it is concentrated in progressive enclaves on the west coast.

      2. It doesn’t spread by contact between humans like the flu or strep throat?

    2. Does the study take into account how many are voluntary homeless. I have heard estimates of up to 100,000 people have chosen to live migratory lives in vans, trucks, and small RVs.

  3. The problem is kids today. They are going to be enslaved for years to pay this back. But instead of fighting it, they are protesting fake problems like gun rights, which will only end up being a war on them – which they will have to pay for! They really should be out on the streets demanding cuts to medicare and social security. Yes they will have to live with their grandparents, but that’s actually healthy even if unpleasant.

  4. European levels of government debt relative to GDP mean what – economic stagnation? Or perhaps the guy from the Manhattan Institute believes we’ll experience hyperinflation. Too bad this interview was too short and barely scratched the surface on what he thinks will happen when the federal debt crisis becomes a current and not future problem.

    Democrats are likely okay if the “damage” makes the USA more like Europe (or at least like Germany and France – not like Greece). Muddling along with low economic growth and generous social welfare benefits would be okay with them.

    Japan’s debt-to-GDP levels have been very high for a while – and the widely predicted hyperinflation has yet to happen.

    Wish the folks at Reason would try harder to describe how our debt crisis will play out, from an operational standpoint. I continue to get the feeling few of them have a grasp of how our monetary system even works.

  5. Why no discussion of inflation/devaluation?

    If you’re opposed to that as a policy prescription, you’ve still got to admit it’s a likely outcome. It’s a big piece of how we got out of the WWII debt/GDP.

  6. This interview has been condensed and edited for clarity and style. For a longer version, visit reason.com.

    Weird. I thought I was on Reason.com?

  7. our long-term deficit is 100 percent the result of Social Security and Medicare.
    …The rest of the budget is going to run a $16 trillion surplus over the next 30 years.

    Then the only sol’n is to put them on the regular budget, ending their tie to SS taxes. SS taxes can’t be raised enough, nor SS & Medicare cut enough, to balance a separate SS budget.

    Good side effect: Once they’re on the regular budget, they’ll be much easier to cut, since they won’t be owed to anybody. Of course that’s why they had a separate budget to being w.

    1. SS in the past has bought government bonds like anyone else does so it has not cost a dime other than what we have paid. There are at least 3 things that can be tweaked on SS that will make it fine for generations to come. Don’t blame SS for the general budget BORROWING our money.

  8. Medicare needs to negotiate and set its own prescription drug prices. And it needs to set its own prices for medical services based on international standards.

    If the cost of healthcare were to come down to international levels, the medicare fiscal problem would not seem so immense.

    Sadly, the mental health care costs for the current generation of youth projects to grow exponentially and will be one more added stressor to the system that nobody is planning for.

    1. “If the cost of healthcare were to come down to international levels, the medicare fiscal problem would not seem so immense.”

      If the cost of good scotch were to come down to cheap whiskey levels, my drinking problem would not seem so immense.

  9. Trump has explicitly stated that he doesn’t care, because he won’t be in office when the sh*t hits the fan.

    1. Bush I and II, Clinton, and Obama didn’t care either. Debt was less than 1 trillion when Reagan left office. The Fed lowered the discount rate when Clinton took office, raised the rate when Bush II was in office and lowered it again when Obama was in office. Obama also had QE1,QE2,QE3,QE4 and added 9 trillion to the debt. So what did the Fed do? It raised the rate for Trump. Fake money will be paid back with more fake money as soon as a Democrat is back in the White House.

  10. Revenues are going to continue rising above historical averages. Every other part of the budget is shrinking [as a percentage of GDP].

    Every other part of the budget is part of GDP! Social Security and Medicare are part of GDP. And Social Security should call in the loans made to the rest of the government. SS was raided to support the rest of the welfare like Medicaid, Farm subsidies, and other corporate welfare like credits for Tesla and First Solar…

  11. Revenues are going to continue rising above historical averages. Every other part of the budget is shrinking [as a percentage of GDP].

    Every other part of the budget is part of GDP! Social Security and Medicare are part of GDP. And Social Security should call in the loans made to the rest of the government. SS was raided to support the rest of the welfare like Medicaid, Farm subsidies, and other corporate welfare like credits for Tesla and First Solar…

  12. So will anyone in DC ever do anything about it? Or just wait until it eats the budget.

  13. For every complex problem there is an answer that is clear, simple, and wrong.

    H. L. Mencken

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